Power of Sale or Foreclosed Property - Good Value?
Friday Aug 31st, 2018
It never fails. When I start working with buyer clients, they always ask me about purchasing a foreclosed property or a power of sale property. The reason they ask me this is because they believe they are going to get a really good deal and pay less for a home. If you watch a lot of HGTV or TLC shows, buying shows people buying homes in the United States, it may be a great way to get a good deal but here in Ontario may not necessarily be the case.
Disclaimer I'm not a lawyer, or a solicitor and I am not providing legal advice. I am just providing a little bit of an overview of how power sale and foreclosed properties work in Ontario.
If someone who owns a home and has a mortgage on their property doesn't pay their mortgage, after a certain amount of time, the lender is going to want their money back. The lender could be a bank or institution, or private lender and they want to get paid so one of the remedies that they can invoke would either be a foreclosure or a power of sale. There are other types of remedies, but these are the most popular.
Foreclosure requires the lender go to court and get a judge involved. There is so much paperwork and legal procedures that lenders prefer not to jump through those hoops, so it tends not to be very popular.
Power of Sale is a much easier procedure, so it is most popular, and it occurs in about 90% of cases in Ontario. There is a law in Canada that says that the lender must get fair market value. This is key because with fair market value, as a buyer, you are not necessarily going get the best deal on the street. When a home goes into power sale there are lawyers involved as well and they will most likely hire a Realtor.
The Realtor is hired by the lender and work for the lender, not the homeowner and the Realtor is required to get FAIR MARKET VALUE. The home will be marketed and treated the same as any other home. Whatever the home is sold for, the lender gets their share and any difference is returned to the homeowner. For example, if the mortgage balance is $200,000 and the home is worth $800,000 and is sold for $800,000, the lender gets their $200,000 back plus legal fees and then the balance of whatever is left over after the realtor fees goes to the homeowner. You may not get the best deal unless the house potentially may have a stigma attached to it (something may have happened in the home or it may have been used for illegal activity) and therefore priced appropriately to reflect that stigma.